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Tax - Week Two - Coggle Diagram

- - - - C. Exemption of Government Agencies
        
        D. Territoriality/Situs of Taxation
        
        E. International Comity
        
        Comity - Under the principle of in par parem, non habeat imperium, the property or income of a foreign state or government may not be the subject of taxation by another state.
        
        Lack of Consent - In international law, a foreign government may not be sued without its consent useless to impose a tax which could not be collected.
        
        Lack of Jurisdiction - Similarly, when a foreign sovereign enters the territorial jurisdiction of another, there is an implied understanding that the former does not intend to degrade its dignity by placing itself under the jurisdiction of the other.
        
        Proprietary Functions - If the government itself enters into a business venture, then that business is taxable by the government in which the business activity is inside.
        
        International Declarations (Tanada v. Angara) - Form part of the land, but not self-executing. Must be transformed into domestic law.
        
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        Const. Art. II Section 2 - The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations.
        
        Scope - A state may not tax property lying outside its borders or lay an excise/privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state. The power to tax is limited to the territorial jurisdiction of the taxing state.
        
        XCPN - Where privity of relationship eixsts.
        
        Test of Taxability - The source of an income, the source being the activity that produced the income.
        
        Place of Payment (Manila v. Collector) - Even if the place of payment is outside the country, so long as the income was derived from the Philippines, it still is taxable.
        
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        Situs of Taxation - Literally the place of taxation. The state where the subject to be taxed has a situs may rightfully levy and collect the tax; the situs is necessarily in the state which has jurisdiction/dominion.
        
        Determination of Situs - Multiple factors may be considered such as:
        
        Nature of the tax;
        
        Subject matter of the tax (person, property, act or activity);
        
        Possible protection and benefit that may accrue both to the government and the taxpayer;
        
        Citizenship of the taxpayer;
        
        Residence of the taxpayer;
        
        Source of income.
        
        Geographical Boundaries (Wells Fargo Bank v. Coll) - Distinct from territory. Instead, taxing authority attaches to persons, properties and transactions.
        
        Scope - This may apply to domestic shares of stock taxable in the Philippines or, tax on resident citizens on worldwide income. If business transactions are done in the Philippines, these transactions are taxable.
        
        Multiplicity of Situs/Jurisdiction - A person may be subject to taxation by reason of several jurisdiction/situs. Here, either multiple situs or multiple jurisdiction. e.g., Pacquiao, person situs is in the Philippines. Taxable Income in the US exposes him to another situs for tax. This can be cured by international agreements.
        
        Situs Rules -
        
        Real Property - tax where the property is located.
        
        Personal Property - Tax where the owner of the personal property is,
        2a. Intangible Personal Property - EXCEPT domestic shares of stock (intangible property) even if person outside, the fact that the assets are issued by a Philippine corporation, the person may still secure a remedy against the issuing corporation.
        
        Business Transaction - Where the business transaction happened. If doing business in the PH, situs is PH.
        
        Citizenship - Situs is PH.
        
        Residence - Applies regardless if PH or foreign citizenship. So long as in the PH, may be subjected to taxation.
        
        Airline Tickets (CIR v. Boac) - Ma'am says unique case, what triggered the taxation was the selling of the ticket here. It was the source of the income, being the property, activity, or service that produced the income. Regardless if the airline had no landing rights.
        
        General Rule - If the Taxing Authority is the National government, agencies and instrumentalities of the government are exempt from tax. This applies generally to the entitites through which the government exercises sovereign powers. This is anchored on the principle of state immunity from taxation.
        
        XCPN - When the government chooses to tax itself, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.
        
        GOCCs (NIRC 27c) - GOCCs performing proprietary functions are subject to taxation UNLESS there is a specific exemption in their charters.
        
        Specific GOCCs - These GOCCs are tax exempt:
        
        Government Service Insurance System (GSIS)
        
        Social Security System (SSS)
        
        Philippine Health Insurance Corporation (PHIC)
        
        Local Water Districts (LWDs)
        
        PCSO - Removed from the list by the train law. Effective as of Jan 2018.
        
        Exempt Corporations (NIRC 30I) - Government Educational Institution
        
        LGC 133o - LGUs are asked to respect tax immunity of Nat. Gov.
        
        Beneficial Use - LGC 243 provides that if beneficial use of real property of the government or any of its political subdivisions are granted, such person receiving beneficial use are taxable.
        
        Duration (Mactan Cebu) - Exemption is not perpetual. For example, GOCC exemption may be withdrawal.
        
        Beneficial Use Rule (MWSS) - Real property, if extended to private individuals who have beneficial use thereof exposes the property to tax.
        
        Rationale - Endless loop, they tax themselves so they have to tax themselves to pay for the tax. Thus, provisions granting tax exemptions to government agencies are construed liberally in favor of non-tax liability. Money from one pocket to another.
        
        Governmental Function NIRC 327b - Excludes any income derived from any public utility or any essential governmental function.
        
        Proprietary Function - Non-essential governmental function. This may expose them to taxation. This is because government lowers themselves to a private individual here.
      - Nature of Tax Power (Delegata potestas non potest delegari) - Taxation is an inherently legislative power. As a rule, it may not be delegated.
        
        Exceptions -
        
        LGUs (CONST. X, Sec. 5) - Each LGU has the power to levy taxes subject to guidelines and limitations as Congress may provide. These taxes accrue exclusively to LGUs.
        
        President (CONST. Art. VI, Sec. 28) - Non-legislative aspects of taxation may be delegated such as the power to enter into executive agreements or to ratify treaties which grant tax exemption (subject to senate concurrence); Furthermore, Congress may, by law authorize the President to impose tariff rates, import/export quotas/ tonnage/wharfage dues, other duties/imposts within the framework of national development.
        
        Administrative Rate Fixing (ABAKADA v. Exec Sec) - Rate-fixing may be delegated provided that the legislature prescribes that the rate be reasonable and just. Limited to power to value property, assesses and collect as well as any details incidental to computation, appraisement and adjustment.
        
        Forms of Administrative Issuances (CIR v. CA) -
        
        Legislative Issuance - Subordinate legislation, whereby the administrative agency is acting in a legislative capacity, supplementing the statute, ﬁlling in the details, pursuant to a speciﬁc delegation of power This requires public hearing, notice and publication.
        
        Interpretative Issuance - designed to provide guidelines to the law which the administrative agency is in charge of enforcing. Only requires the bare issuance for it gives no consequence more than what the law has already prescribed
        
        Tax v. Police Power (LTO v. Butuan) - Police power is more general. Tax is subject to more specific prohibitions/limitations. Thus, a taxation measure may be invalid where a police power measure is not. Police power goes to public good and welfare, taxation focuses on power to raise revenue.
        
        Check nature of exaction, if fees then PP. If revenue raising, then tax. If exaction, check if proper exercise of tax power in relation to delegated authority standards.
        
        Form of Delegation - Here, defined subject of taxation and rate of rates.
        
        Valid Delegation (Phil Comm. Sat. v. Alcuaz) -
        
        Completeness Test - it must set forth the policy to be executed by the delegate and,
        
        Sufficient Standard Test - lays down a sufficient standard when it provides adequate guidelines or limitations in the law to map out the boundaries of the delegate's authority and prevent the delegation from running riot. It must specify the limits of authority, announce the legislative policy and identify the conditions under which it is to be implemented.
        
        Note, that this contemplates the power to determine the nature, object, purpose, extent, amount, coverage and situs of tax.
        
        Not the power to assess and collect.
    - - Test (Pascual v. Sec of Public Works) - Whether the statue is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.
        
        Scope of Application (Tio v. Videogram) - The public purpose of a tax exists regardless if it favors one industry or another regardless of the number of persons benefited.
        
        Tax for Private Purposes - Prohibited, as taking of property without due process of law.
        
        Legal standing - Taxpayers in general have interest in preventing illegal expenditures of taxes such that they are clothed with legal interest to question the constitutionality of tax statutes. If no public funds expenditure, no standing.
        
        Examples of Public Purpose Expenditures -
        
        Financing of educational programs
        
        Promotion of science
        
        Maintenance of roads, bridges
        
        Aid for victims of public calamity
        
        Relief for unemployed
        
        Construction of experimental stations to increase efficiency in sugar production
        
        Duty Test - Whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State as a government to provide
        
        Welfare Test - Whether the proceeds of the tax will directly promote the welfare of the community in equal measure
        
        Object of Expenditure Test - the essential character of the direct object of the expenditure which must determine its validity as justifying a tax and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion.
      - Public Purpose (Pascual v. Sec. of Public Works) - Must be there from the beginning, not just an afterthought.
        
        Scope (CIR v. Central Luzon) - Public Thought has been held synonymous with public interest, benefit, welfare and convenience. Nevertheless, Public purpose does not mean all of the people. So long as redound to the general welfare.
  - - - B2. Equal Protection Clause
        
        B3. Uniformity/Equitable Taxation
        
        B4. Non-Impairment of Contracts
        
        B5. Non-Imprisonment for Poll-Tax
        
        B6. Tax Exemptions for Religious/Charitable Institutions
        
        CONST. VI, 28.3 - Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.
        
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        B8. Non-Establishment of Religion
        
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        Const. Art. III Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.
        
        Penalty (LGC) - Delinquency is the payment of surcharge. However, they may be imprisoned for violation of the community tax law for reasons other than the non-payment itself.
        
        Poll-tax - taxes of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations.
        
        Const. Art. III. Section 10.
        
        GR - Revocable
        
        XCPN - if contractual tax exemption, no unilateral revocation.
        
        XCPN 2 XCPN - Contractual tax exemption granted under a franchise, may be revoked without non-impairment.
        
        Coverage - This covers contracts entered into by the government and covers administrative orders/local ordinances.
        
        Franchise (CONST. XII, S. 11) - exemption from taxation provided for in a franchise, although also based upon a contract, may be revoked because under the Constitution, a franchise is subject to amendment, alteration or repeal by congress.
        
        Contractual tax exemptions, - Those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity.
        
        May not be revoked without impairing the obligations of contracts.
        
        These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises
        
        Form of Exemption -
        
        Unilateral Exemption - revocation does not result in impairment of contracts. May be revoked at will by the legislature.
        
        Exemption for Consideration -
        
        Impairment - The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other, thereby weakening the position of another.
        
        Equal Treatment - All persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed i.e., equal treatment for persons in the same class.
        
        Classes for Taxation - It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.
        
        Reasonable Classification (Ormoc v. Treasurer of Ormoc City) -
        
        Substantial Distinctions -Based on substantial distinctions
        
        Germane - These are germane to the purpose of the law
        
        Future and Present Conditions - Applies not only to present conditions but also to future conditions which are substantially identical to those of the present
        
        Same Class - applies only to those who belong to the same class
        
        Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.
        
        Uniformity of Taxation - Refers to proper relative treatment for tax purposes of persons in UNLIKE circumstances.
        
        Uniform - All articles/properties of the same class are taxed at the same rate.
        
        Equitable - must be more or less just, anchored on ability to pay taxes/shoulder the burden.
        
        e.g. VAT on services
        
        Progressive System of Taxation - Designing tax laws, aligned with the ability to pay principle. Closer to direct taxation (income taxation). However, constitutional mandate on progressive system of taxation does not require that the system be exclusively progressive.
        
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        Focus is on subject matter of taxation.
      - Limitations to Taxation -
        
        Private Property - tax which is imposed for a private purpose or which is beyond the jurisdiction of the government to levy and collect oﬀends the due process of law is invalid.
        
        Procedural Due Process (NIRC 228) - NIRC requires that the taxpayer shall be informed in writing of the law and of the facts on which assessment is made; otherwise, the assessment shall be void.
        
        Effect of Invalidity - Tax must be refunded.
        
        Non-Payment of Taxes - A taxpayer may not be deprived of his property for non-payment of taxes without giving notice to him as required by law of his liability as well as of the sale at public auction.
      - Substantive Due Process - Goes into whether the tax is reasonable, under a valid authority, for a public purpose, within territorial jurisdiction.
        
        Procedural - Goes into arbitrariness/whether there was due opportunity for notice and hearing.